Crypto investors and executives are bracing for further pain after bitcoin’s price plummeted over the weekend, deepening the credit crunch gripping the industry.
Bitcoin, the most actively traded cryptocurrency in the world, fell to $17,628 on Saturday before bouncing back, according to data from CryptoCompare.
Investors and executives are eagerly watching the price of the token, fearing that a drop below $20,000 could trigger forced liquidations of large leveraged bets.
Bitcoin, which acts as the primary benchmark for the broader cryptocurrency market, has come under severe pressure in recent months as central banks and governments have moved from a prolonged period of ultra-high interest rates. down to a fight against soaring inflation.
“It’s a dark winter ahead for crypto as the era of free money comes to an end with another brutal sell-off across the board this weekend. Risk assets are all thrown out the window,” said Dan Ives, managing director and senior equity analyst at Wedbush Securities.
The hunt for yield has changed as major central banks, led by the US Federal Reserve, raise borrowing costs and end pandemic-era efforts to boost economic growth.
Traditional financial markets have been rocked this month as traders feared the aggressive action could rumble global growth or even trigger a recession. Last week was the worst for global stocks since the darkest days of the pandemic in March 2020.
Bitcoin has fallen around 70% from its all-time high of nearly $70,000 last November to under $20,000. Ether, another actively traded token, fell as low as $900 over the weekend, meaning its price has fallen four-fifths since its peak late last year.
This has contributed to a growing credit crunch in the digital asset industry that threatens to engulf many of its key players.
Over the past month, so-called stablecoin terra and its sister token luna – popular with crypto traders seeking ultra-high yields – collapsed, two lending platforms prevented depositors from withdrawing their assets and crypto hedge fund Three Arrows failed to meet margin calls in response to requests from lenders.
The weekend sell-off resulted in the liquidation of more than $600 million in leveraged positions, according to data from Coinglass, as traders who had borrowed money to take bets in the supercharged market did not did not provide more guarantees and were wiped out.
Analysts expect these losses to put additional pressure on the balance sheets of merchants and lenders, as many users have taken out loans against their holdings of crypto assets.
However, dogecoin, the “joke” cryptocurrency, rose after Elon Musk, chief executive of electric car maker Tesla, posted a tweet about his continued support for the token.
Nayib Bukele, president of El Salvador and bitcoin champion, told investors on Sunday to “stop staring at the chart and enjoy life.” Bukele, who spearheaded the adoption of bitcoin in El Salvador as legal tender last year, dismissed IMF warnings about the policy.
The problems in the crypto market have trickled down to the corners of the traditional financial market. MicroStrategy, a US-listed technology group that is a major investor in bitcoin, has fallen nearly 70% this year. Shares in crypto miners, which collect fees for validating crypto transactions, also fell sharply.
Crypto exchanges – platforms that find themselves directly in the teeth of the relentless market crash – have been forced to scrap hiring plans. The list includes Coinbase, Gemini, Mercado Bitcoin – a popular exchange in South America – and rival Celsius lender BlockFi, which cut 20% of its workforce this month.
Additional reporting by Adam Samson in Milan